If You Plan to Retire This Year, Be Prepared

If you’re sure that you are going to leave the working world and start your retirement life in 2020, better not put in your notice at work until you’ve done your homework. The Motley Fool article “Retiring in 2020? 3 Things You Need to Know” covers three important steps.

If you were born in 1958, then this is the year you celebrate your 62nd birthday—which means you are eligible to collect Social Security. However, if you do, your benefits will be reduced as you have not yet reached your “Full Retirement Age” or FRA. People born in 1958 need to be 66 and eight months to reach that important milestone. At that point, you can collect your full benefit. Collect earlier, and your monthly benefit is reduced for the rest of your life.

Born in 1954 or earlier? Full retirement age for you is 66, if you were born between 1943 and 1954. If if you were born at the tail end of this range, then you can collect your full Social Security benefit this year. However, it still may pay to hold off on claiming benefits.

The longer you can delay tapping your Social Security benefits, the better. From the time you reach your FRA until age 70, your monthly benefit grows by about 8% each year. Few investments today have that kind of guaranteed yield. Some advisors recommend tapping retirement accounts first and delaying Social Security benefits as long as possible. It’s worth taking a closer look to see how this can be of benefit.

If you are planning to retire, but you’re not 65, you’ll need to find and pay for health insurance until you celebrate your 65th birthday. You can enroll in Medicare a few months before your 65th birthday, but if you’re 62, then you have a three-year health insurance gap. Private health insurance is extremely expensive, there’s no way around it. Before putting in that letter to HR that you’re retiring, get some real numbers on this cost. If your employer will consider having you work part-time so that you can maintain your employer-covered health insurance, it may be a good idea.

If you’re closer to age 65, then COBRA is a consideration, although it may still be expensive. Typically, COBRA allows you to retain your existing health coverage if you change jobs, or are fired, for a certain amount of time. However, you have to pay for the full cost of health coverage.

If your gap is only three months, then COBRA might make sense. However, if your gap is a year or more, then you need to be realistic about health coverage options. Pre-existing conditions and a limited marketplace for individual coverage may make this the reason you keep working until 65. You should also check the rules of going from COBRA to Medicare—they may not be the same as going from an employee plan to Medicare.

The more prepared you are for retirement, the more you’ll be able to relax and enjoy this new phase of your life. If these three points have made it clear that you’re not yet able to retire, understand that it is better to work a little longer to reach your eventual goal of retirement, then to find yourself struggling to pay bills and jeopardize a lifetime of savings because of unexpected expenses.

Reference: The Motley Fool (Dec. 28, 2019) “Retiring in 2020? 3 Things You Need to Know”

The Dark Side of Dementia Care

You might expect the federal government to oversee and regulate assisted living facilities. However, since Medicare and Medicaid usually do not pay for stays at these facilities, there is no federal protection for the residents. When you consider how many assisted living centers now claim to offer dementia and memory care, you can see the brewing of a perfect storm. Highly vulnerable people are at the mercy of unregulated facilities. If you have a loved one in an assisted living center, you need to know about the dark side of dementia care.

People who live in nursing homes have some protections through federal legislation. The government imposes strict rules on nursing homes that receive funding from Medicare or Medicaid. Most assisted living centers are private pay, so the federal government cannot regulate them.

Some states have regulations designed to protect people in long-term care facilities. These states are discovering appalling conditions at many assisted living centers that advertise dementia care. Let’s be clear – there are wonderful facilities that provide fantastic dementia care. The problem is, a great number of for-profit facilities have sprung up quickly, without enough focus on the best interests of the residents.

The Reasons for Unacceptable Conditions at Dementia Care Facilities

The number of Americans with Alzheimer’s disease and other forms of dementia has risen dramatically over the last 20 years. Businesses all over the nation have seized on this opportunity to make a profit, by providing specialized care services. The problem is, many of these facilities do not deliver the promised level of care and security for these residents.

Long-term care can cost $5,000 to $7,000 a month or more. Most of the facility employees get paid low wages, particularly the workers who provide the lion’s share of the hands-on care of residents. To increase profits, the corporations that own and run these facilities often have high patient-to-staff ratios. In short, the centers are understaffed, and the workers are underpaid. Neither of those factors is conducive to the safe, attentive, nurturing environment that a person with dementia needs.

A Climate of Not Caring

Even when a state has regulations for assisted living centers, the punishments show little value for the well-being and lives of the elderly. For example, a 90-year-old lady with dementia lived in an assisted living facility in South Carolina. When she wandered away from the center one night, her absence went unnoticed for seven hours. By the time someone finally realized she was missing, she had already met a gory death.

An alligator in the pond next to the center killed and partially ate her. Her granddaughter was one of the first people to find the remains of the body. A year later, the state cited the facility for more than 10 violations involving patient safety, including not maintaining adequate numbers of staff and failing to perform nightly checks of residents. The state imposed a fine of $6,400.

Long-term care ombudsmen across the U.S. say that many facilities use psychotropic drugs as chemical restraints, instead of providing the quality care the residents need and for which they are paying thousands of dollars every month. The staff members often do not have training in dementia care, but even in states with a training requirement, industry experts say the regulations get ignored.

Every state makes its own regulations. Be sure to talk with an elder law attorney near you to find out how your state might differ from the general law of this article.

References:

Huffpost. “Dementia Care Is A Lucrative Business. Its Breakneck Growth Is Costing Patients’ Safety.” (accessed November 8, 2019) https://www.huffpost.com/entry/assisted-living-dementia-injuries_b_5c1d6f88e4b04aa0a171b895

How Does Traveling While on Medicare Work?

CNBC’s recent article, “Planning to travel while on Medicare? Make sure you have coverage at your destination” explains that basic Medicare—which includes Part A (hospital coverage) and Part B (outpatient care)—typically doesn’t cover any medical costs outside of the U.S. and its territories. There are a few Medicare Advantage Plans that cover emergency services overseas, as well as some Medigap plans that also offer protection.

If you’re on Medicare, your coverage away from home depends partly on your destination and if you’re on basic Medicare or receive your benefits through an Advantage Plan. This also can depend on whether the health care you get is routine or due to an emergency.

Travel medical insurance can be the solution to gaps in coverage, but it’s good to first determine whether you need it. Remember that original Medicare consists of Part A and Part B. Retirees who opt to stay with just this coverage—instead of going with an Advantage Plan—typically pair their coverage with a stand-alone prescription-drug plan (Part D). If you fit in this situation, your coverage while traveling in the U.S. and its territories is fairly simple. You can go to any physician or hospital that accepts Medicare, regardless of the type of visit.

However, when you journey beyond U.S. borders, things get more complex.

Generally, Medicare doesn’t provide any coverage when you’re not in the U.S, with a couple of exceptions. These include if you’re on a ship within the territorial waters adjoining the country within six hours of a U.S. port or you’re traveling from state to state but the closest hospital to treat you is in a foreign country. As an example, think a trip to Alaska via Canada from the 48 contiguous states.

Roughly a third of retirees on original Medicare also buy supplemental coverage through a Medigap policy (but you can’t pair Medigap with an Advantage Plan). Those policies, which are standardized in every state, vary in price and offer coverage for the cost-sharing parts of Medicare, like copays and co-insurance. There are some Medigap policies—Plans C, D, F, G, M and N—that offer coverage for travel. You pay a $250 annual deductible and then 20% of costs up to a lifetime maximum of $50,000. However, that may not go very far, depending on the type of medical services you need.

There’s also no overseas coverage through a Part D prescription drug plan, and Medigap policies don’t cover any costs related to Part D, whether you’re in the U.S. or not. For seniors who get their Medicare benefits—Parts A, B and typically D—through an Advantage Plan, it’s a good idea to review your coverage, even if you’re not leaving the U.S. any time soon. These plans must cover your emergency care anywhere in the U.S., but you may have to pay for routine care outside of their service area or you’ll pay more.

Some Advantage Plans may also have coverage for emergencies overseas, so review your policy. Whether you have an Advantage Plan or original Medicare, travel medical insurance might be a good move if you think your existing coverage isn’t enough. The options are priced based on your age, the length of the coverage and the amount. In addition to providing coverage for necessary health services, a policy usually includes coverage for non-medical required evacuation, lost luggage and dental care required due to an injury.

There’s coverage for a single trip of a couple weeks or several months, or you can buy a multi-trip policy, which could cover a longer time period.

It’s also important to know if your policy covers pre-existing conditions, since some don’t. You should also be aware that some Advantage Plans might disenroll you, if you stay outside of their service area for a certain time, usually six months. In that situation, you’d be switched to original Medicare. If you are disenrolled, you’d have to wait for a special enrollment period to get another Advantage Plan.

Reference: CNBC (July 14, 2019) “Planning to travel while on Medicare? Make sure you have coverage at your destination”

Relocating for Retirement? What You Need to Know

Sometimes having too many choices can become overwhelming. Move closer to the grandchildren, or live in a college town? Escape cold weather, or move to a mountain village? With the freedom to move anywhere, you’ll need to do some serious homework. A recent article titled “Don’t Relocate in Retirement Without Answering These 5 Questions” from Nasdaq contains some wise and practical advice.

There are some regions that are more retirement-friendly than others. If you end up in the wrong place, it could hurt your retirement finances. Therefore, ask these questions first:

What are the state’s taxes like? If you are living on Social Security benefits, retirement savings and a pension, the amount of money you’ll actually receive will vary depending on the state. There are 37 states that don’t tax Social Security benefits, but there are 13 that do. There are also some states that do not tax distributions from retirement accounts. Learn the local rules first. If you currently live in a state with no income tax, don’t move to a state that may require a big tax check.

If you live in a high tax state and don’t have enough money saved for a comfortable retirement, then moving to a lower tax state will help stretch your budget.

Is there an estate or inheritance tax, and is that a concern for you? If leaving money to heirs doesn’t matter to you, this isn’t a big deal. However, if you want to pass on your assets, then find out what the state’s inheritance taxes are. In some states, there are no taxes until you reach a pretty large amount. However, in states with inheritance taxes, even a small estate may be taxed, with those who inherit sometimes owing money on even small transfers.

What’s the cost of living compared to where you live now? When you’re working, moving to a place with a higher cost of living is not as big a deal, since your wages (hopefully) increase with the relocation. However, if your cost of living goes up and your income remains fixed, that’s a problem. The last thing you want to do is move to a place where the cost of living is so high, that it decimates your retirement savings.

If you live somewhere with high taxes and high prices, moving to a lower cost of living area will help your money last longer, and could make your retirement much easier.

Is it walkable or do you need a car? Cars present two problems for aging adults. One, they are expensive to maintain and insure. Two, at a certain point along the aging process, it becomes time to give up the keys. If you live in a walkable community, you may be able to go from having two cars to having one car. You might even be able to get rid of both cars and do yourself a favor, by walking more. This also gives you far more independence, far later in life.

What’s healthcare like? Even people who are perfectly healthy in their 50s and 60s, may find themselves living with chronic conditions in their 70s and 80s. You want to live where first-class healthcare is available. Check to see what hospitals and doctors are in the area before moving. You should also find out if medical care providers accept Medicare. Consider the cost of a nursing home or home care in your potential new community. Some areas of the country have much higher costs than others.

Reference: Nasdaq (Aug. 9, 2019) “Don’t Relocate in Retirement Without Answering These 5 Questions,”

Retirement Planning: Where to Start?

While you may be thinking about retirement for a long time, with visions of tropical beaches or grand trips overseas, when the date starts to get closer, it’s time for some real analysis and planning, says limaohio.com’s recent article “What to consider when starting retirement.”

Start with a realistic assessment of your healthcare needs. At age 65, most people are eligible for Medicare. There are many different parts of Medicare, identified by letters, that are optional add-ons to expand coverage to serve more like the health insurance you have while working. Medicare is not directly charged to individuals, but the parts in which Medicare participants opt into, do require out of pocket payments.

Next, prepare a budget and cash-flow plan that reflects your current cash-flow situation and compare that to your expected cash-flow situation upon retirement. During retirement, income comes from several sources: part-time work, Social Security, distributions from retirement plans and earnings from investments or returns from investments.

As you get closer to retirement age, you can secure an estimate of your benefits from the Social Security Administration. This can be done by going to the government agency’s website and creating a “my Social Security” account, by calling the local office or sending a letter via mail. Note that the estimates are only estimates. Don’t depend on those being the final numbers.

Social Security benefits are based on the number of years you have worked and the amount of money that was contributed to Social Security over a lifetime. Many people mistakenly think that Social Security is a government managed retirement system, where there is a relationship between what gets paid and what is distributed. However, Social Security’s process of determining benefits is based on a formula.

Based on your birthdate, Social Security calculates the age at which you can receive the program’s maximum benefit. If you take benefits before that date, then the monthly amount will be smaller over your lifetime. The longer you can delay taking benefits after your Full Retirement Age (FRA), the larger the monthly payment will be.

Retirement accounts, like 401(k)s and IRAs, allow for withdrawals without penalty after age 59 ½. Unless the account is a Roth IRA, any amounts withdrawn will be subject to taxes. At age 70 ½, account owners are required to withdraw a certain amount from IRAs and 401(k)s, known as Required Minimum Distributions (RMDs).

All this information needs to be considered to plan for retirement, especially with the prospect of needing long-term care, including nursing home or in-home care. This usually involves planning to someday become eligible for Medicaid, if needed.

When you are preparing for retirement, it’s also a good time to make sure that your estate plan is in place. An estate plan that has not been reviewed in three or four years may only need a few tweaks, or it may need a complete overhaul. Speak with your estate planning attorney to make sure you’ve covered all of your retirement bases.

Reference: limaohio.com (Aug. 31, 2019) “What to consider when starting retirement.”

What’s Long Term Care About?

Many people are scared about the prospect of needing help in a long-term care setting, and they are right to be worried. For many people, a spouse or adult children will become the go-to caregivers, but not everyone will have that option, says Market Watch’s article “This is how much long-term care could cost you, and don’t expect Medicare to help.”

If that’s not worrisome enough, here are facts to consider:

  • More than a third of people will spend some time in a nursing home, where the median annual cost of a private room is well over $100,000, says Genworth’s 2018 Cost of Care Survey. Don’t expect those numbers to go down.
  • Four of ten people will opt for paid care at home, and the median annual cost of a home health aide is more than $50,000.
  • Half of people over 65 will eventually need some kind of long-term care costs, and about 15% of those will incur more than $250,000 in costs, according to a joint study conducted by Vanguard Research and Mercer Health and Benefits.

Medicare and even private health insurance don’t cover what are considered “custodial” expenses. That’s going to quickly wipe out the median retirement savings of most people: $126,000. With savings completely exhausted, people will find themselves qualifying for Medicaid, a government health program for the indigent that pays for about half of all nursing home and custodial care.

Those who live alone, have a chronic condition or are in poor health have a greater chance of needing long-term care. Women in particular are at risk, as they tend to outlive their husbands and may not have anyone available to provide them with unpaid care. If a husband’s illness wipes out the couple’s savings, the surviving spouse is at risk of spending their last years living on nothing but a Social Security benefit.

The best hedge against long-term care costs is to purchase a long-term care insurance policy, if you are eligible to purchase one. Wait too long, and you may not be able. One woman persuaded her parents to purchase a long-term insurance policy when her father was 68 and her mother was 54. Five years into the policy, her father was diagnosed with Parkinson’s disease. The policy covered almost the entire cost of his 24-hour care in the final months of his life. Her mother lived to 94, so the investment in the policy was well worth it.

Everyone approaching retirement needs a plan for long-term care costs. That may be purchasing long-term care insurance, speaking with a qualified elder law attorney, or purchasing a hybrid life insurance product with long-term care benefits. If there is no insurance and one member of the couple is still alive, getting a reverse mortgage may be an option.

Reference: Market Watch (July 19, 2019) “This is how much long-term care could cost you, and don’t expect Medicare to help.”

How Can I Avoid a Retirement Home and Live at Home?

Staying at home requires planning. The sooner you begin, the more prepared you’ll be, even if you’re around at 102.

The Washington Post’s article, “Aging in place helps you to avoid a retirement community or nursing home,” explains that there’s plenty of work to do.

You might start by remodeling or retrofitting your home to suit senior-specific issues, such as decreased mobility or impaired eyesight (think replacing a bathtub with a walk-in shower or improved lighting). Some seniors add a first-floor bedroom and bathroom and an outdoor ramp onto their homes. Other changes can include wider doorways (the better to potentially accommodate a wheelchair or walker), a bathroom with grab bars and an easy-access shower.

This is known as universal design, which means building or remodeling a home to accommodate all ages and abilities. It can usually be implemented or planned by builders or contractors who are Certified Aging in Place Specialists (CAPS), an educational designation offered by the National Association of Home Builders.

Even if you can’t afford a major remodel, there are some simple changes you can do, like installing shower grab bars or improving interior and exterior lighting to avoid falls and other accidents. You can also secure throw rugs to the floor with special two-sided tape to prevent slips.

You can speak with an elder law attorney about health agencies, resources for financial assistance, elder abuse prevention, as well as estate planning, Medicare, Medicaid and other state programs.

Keep busy by taking yoga at the local rec center, business or computer classes at the public library, or even getting a roommate to help combat loneliness and keep feeling connected and emotionally healthy.

For dining, in addition to the community-based food delivery from Meals on Wheels, you can get restaurant food or groceries delivered to your home by services, such as Uber Eats, Caviar and Peapod.

There are also a number of meal prep companies—Blue Apron, Hello Fresh, and others—that make it easier to put a healthy meal on the table, without the need to journey to the grocery store.

Reference: Washington Post (July 1, 2019) “Aging in place helps you to avoid a retirement community or nursing home”

Are You Behind in Your Retirement Saving?

Can you believe that almost half (48%) of American households over the age of 55 still have no retirement savings? Even so, it’s better than previous years, according to the U.S. Government Accountability Office.

CNBC’s article, “These people are on the verge of retiring—and they have nothing saved,” says that the congressional watchdog group based its conclusions on an analysis of the Federal Reserve’s Survey of Consumer Finances.

In 2013, roughly 52% of households over age 55 had zero saved for retirement. While the over-55 crowd may have a big savings shortfall to make up, there are steps they can take. Let’s look at what they need to do.

Catch up on contributions to retirement plans: Workers can defer up to $19,000 in a 401(k) plan at work. Those employees who are over 50, can save an extra $6,000. Older savers can also sock away more money in an IRA, since the contribution limit for IRAs is $6,000 in 2019. people who are 50 and up, can save an additional $1,000.

Increase the funds in your health savings account: If you’re still working and have a high-deductible health plan at work, you most likely have access to a health savings account or HSA. HSA’s have a triple tax advantage: (i) you contribute money on a pretax or tax-deductible basis; (ii) your savings will accumulate tax-free; and (iii) you can take tax-free withdrawals to pay for qualified medical expenses. In 2019, participants with self-only health insurance can contribute $3,500. Those with family plans can save $7,000. Account holders age 55 and older can save an extra $1,000 in an HSA.

However, remember that when you’re enrolled in Medicare, you can no longer contribute to your HSA. However, you can use those funds to cover health-care costs in retirement.

Work a little longer and generate income: You could earn money from a part-time job to increase your income and ramp up your retirement savings.

If you get a raise, throw most of it into your savings account. If you get a raise to your pay at work, save two-thirds of it. Increase your 401(k) deferrals, so that you’re saving more of that pay increase.

Living on less than you make, is something that many people don’t learn until late in life—but as long as you are working, you can save.

Reference: CNBC (April 5, 2019) “These people are on the verge of retiring —and they have nothing saved”

How are Baby Boomers Doing with Their Retirement Planning?

The baby boomers—those born between 1946 and 1964, ages 55 to 73—have about half (47%) of their group already in retirement.

CNBC’s recent article, “Baby boomers face retirement crisis—little savings, high health costs and unrealistic expectations,” says that the Insured Retirement Institute’s annual report, Boomer Expectations for Retirement, highlights the fundamental issues of too little savings, underestimating healthcare costs and unrealistic expectations of how much retirement income they’ll actually need.

Too little savings. The three “legs” of the retirement “stool” are Social Security, private pensions and personal savings. These aren’t in great shape, as the average Social Security check is $14,000 a year, and just 23% of boomers ages 56-61 expect to receive income from a private company pension plan, with only 38% of older boomers expecting a pension. Most boomers haven’t saved nearly enough in their personal savings, with 45% of boomers having absolutely nothing saved for retirement.

Underestimating health care costs. Retirees frequently underestimate health expenses, especially long-term care costs. Many people don’t understand the system: half of the survey respondents say they haven’t calculated the cost of long-term care insurance, because they say they’ll rely on Medicare. However, Medicare has no coverage for long-term care. Just eight percent of boomers say they have purchased a long-term care policy.

Underestimating retirement income. The average amount spent by Americans 65-74 is $55,000 annually. However, most baby boomers don’t believe they’ll need near that amount. To that point, about 60% say they will need less than that on which to live. Their backup plan is to downsize, go back to work, or ask their children for help.

Of those who aren’t confident they did an adequate job preparing for retirement, the top two things they wish they’d done differently were to have saved more (63%) and to have started saving earlier (58%).

Reference: CNBC (April 9, 2019) “Baby boomers face retirement crisis — little savings, high health costs and unrealistic expectations”

The Big Eight: Don’t Risk Your Retirement with These Mistakes

During our working lives, we have a cash flow called a “paycheck” that we rely on. A similar cash flow occurs when we retire and start the process of “deaccumulation” or creating income streams from sources that include our retirement funds. However, generating enough income to enjoy a comfortable retirement requires managing that cash flow successfully, says CNBC.com in the article “Here are 8 costly retirement mistakes to avoid.”

Preparing for the risk of a bear market. If markets take a nosedive the year you retire and you stick with your plan to withdraw four percent from your portfolio, your plan is no longer sustainable. Better: have an emergency fund in place, so you don’t have to tap investment accounts until the market recovers.

Investing with inflation in mind. We have been in such a low inflation environment for so long, that many have forgotten how devastating this can be to retirement portfolios. You may want to have some of your money in the market, so you can continue to get rates above any inflation. If inflation runs about 3.5% annually, a moderate portfolio returning 6% or 7% keeps up with inflation, even after withdrawals.

Be ready for longevity. Worries about outliving retirement savings are due to a longer overall life expectancy. There’s a good chance that many people alive today, will make it to 95. One strong tactic is to delay taking Social Security benefits until age 70, to maximize the monthly benefit.

What about interest rates and inadequate returns on safer investments? This is a tricky one, requiring a balance between each person’s comfort zone and the need to grow investments. Current fixed-income returns lag behind historical performance. Some experts recommend that their clients look into high-dividend stocks, as an alternative to bond yields.

Prepare NOT to dump stocks in a temporary downturn. Without strong stomachs and wise counsel, individual investors have a long history of dumping stocks when markets turn down, amplifying losses. We are emotional about our money, which is the worst way to invest. Try working with a financial advisor to remove the emotion from your investments.

Don’t withdraw too much too soon. It looks like a lot of money, doesn’t it? However, even 4% may be too much to take out from your investments and retirement accounts. It all depends upon what other sources of income you have and how markets perform. Be careful, unless going back to work in your seventies is on your bucket list.

Prepare for cognitive decline. This is way harder to conceive of than inflationary risks, but it becomes a real risk as we age. Even a modest level of age-related cognitive impairment, can make managing investments a challenge. Have a discussion with family members, your estate planning attorney and a financial advisor about deciding who will manage your investments, when you are no longer able.

Are you ready for health care costs? If at all possible, wait until 65 to retire, so you will be eligible for Medicare. Even when you have this coverage in place, there may still be considerable expenses that are not covered by Medicare. If you don’t have long-term care insurance, get it as soon as possible.

Reference: CNBC.com (March 5, 2019) “Here are 8 costly retirement mistakes to avoid.”